Binary Beetle Antennae Search Algorithm for Tangency Portfolio Diversification
Vasilios N. Katsikis, Spyridon D. Mourtas
Abstract
The tangency portfolio, also known as the market portfolio, is the most efficient portfolio and arises from the intercept point of the Capital Market Line (CML) and the efficient frontier. In this paper, a binary optimal tangency portfolio under cardinality constraint (BOTPCC) problem is defined and studied as a nonlinear programming (NLP) problem. Because such NLP problems are widely approached by heuristic, a binary beetle antennae search algorithm is employed to provide a solution to the BTPSCC problem. Our method proved to be a magnificent substitute to other evolutionary algorithms in real-world datasets, based on numerical applications and computer simulations.
Topics & Concepts
PortfolioDiversification (marketing strategy)Cardinality (data modeling)Binary numberPortfolio optimizationMathematical optimizationComputer scienceTangentHeuristicNonlinear programmingAlgorithmMathematicsNonlinear systemEconomicsData miningFinanceArithmeticBusinessGeometryPhysicsQuantum mechanicsMarketingReservoir Engineering and Simulation MethodsRisk and Portfolio OptimizationStochastic processes and financial applications